Asset Allocation in the New Macro Regime

Although equities have bounced back and reclaimed their post–Liberation Day losses, the volatility in April has left its mark.

While many saw the sell-off as just another buyable dip, institutional investors are asking a deeper question: Was it a temporary shock — or a sign that a structural shift is under way?

When I speak to investors around the world, two questions keep coming up: Are we entering a new regime for investing — and what does that mean for asset allocation?

From Secular Stagnation to Macro Volatility

With over 100 days of Trump 2.0 behind us, it now seems clear that a new market paradigm is taking shape. U.S. policy is focused on an "America First" mercantilist agenda aimed at boosting domestic manufacturing. In response, Europe has been compelled to adapt to a changing global order, increasing both defence and infrastructure spending.

Even before Trump won the presidency last year, structural trends — high government debt, ageing populations, deglobalisation, and accelerating AI adoption — were already pointing to a new macro regime.

Whereas the 2010s were defined by secular stagnation, low inflation, low interest rates and quantitative easing, we are moving to a regime of greater macro volatility, more erratic policymaking, and a reshaping of global trade and capital flows.

The stable macro environment and accommodative monetary policy of the 2010s were a boon for equity markets — but that playbook may now be obsolete. We appear to be entering an era of more volatile interest rates and currencies, creating headwinds for equities but opportunities for active strategies.

Here are three areas where investors need to rethink their approach to asset allocation.

What Is a Safe Asset?

First and foremost, the definition of a "safe haven" is being re-evaluated. The U.S. dollar has historically been seen as a safe haven, given its reserve currency status and deep, liquid markets.

But with more erratic policymaking, reduced confidence in the U.S., and a growing suspicion that the administration favours a weaker dollar, we have to question whether the dollar will continue to offer the same protection during future stress periods.

This is particularly relevant for international reserve holders and non-U.S. investors. Historically, the dollar has tended to appreciate during periods of market stress, providing a natural hedge on U.S. assets. Today, gold and the Swiss franc are re-emerging as more reliable haven assets.

What Diversifies Equities?

The role of government bonds in portfolios has to be reconsidered. U.S. Treasuries fell in April even as equities sold off. The four decades between 1980 and 2020 were a golden age for fixed income.

A global disinflationary trend produced a bond bull market and a reliable negative correlation between bonds and equities. Bonds not only generated solid returns but also acted as a hedge during equity market drawdowns.

That dynamic is now in question.

First, inflation remains sticky and may require higher interest rates — a scenario that, as in 2022, could be negative for both bonds and equities. Second, as we saw in April, erratic policymaking can erode confidence in U.S. assets more broadly, triggering a “Sell America” trend that could reappear. Third, if the U.S. fiscal trajectory continues to deteriorate, we could see a vicious cycle of reduced demand for Treasuries and rising bond yields, further pressuring equities.

Meanwhile, trend-following strategies — another core risk mitigation tool — also struggled in April, with the SG Trend Index down nearly 5%. Managers were broadly long equities coming into March and were hit as the decline accelerated. But it was the simultaneous reversals in the U.S. dollar and commodities like copper that compounded losses. Anyone looking to trend for “crisis alpha” last month came away disappointed.

That said, the initial stages of an equity drawdown are often challenging for the strategy. Investors should remember that trend following doesn’t always perform during sharp, short-term pullbacks. The longer and more persistent the decline, the more favourable the historical outcomes. Allocating to trend can test the resolve of even the most disciplined investors, but it remains one of the few strategies with a track record of strong performance during major equity market declines.

Although the HFRI Macro Index was -2.2% in April that was partially driven losses in quant macro (including trend following). Across discretionary macro managers what seems clear is that the dispersion of returns was unusually high. The current environment offers rich opportunities for tactical managers, but not all will successfully catch the turns. Global macro remains a compelling diversifier for equity risk, but manager selection and diversification within the strategy are critical.

Rethinking Growth Allocations

On the growth side, two dominant themes of the past decade — U.S. equity outperformance and the surge in private markets — are also being reassessed.

While the market may be premature in calling an end to U.S. exceptionalism — especially if the upcoming “Big Beautiful Bill” delivers market-friendly deregulation and tax reforms — the erratic policymaking of April and the periodic attacks on the Fed may unnerve investors.

Even before Liberation Day, high valuations, tariff concerns, and the Deep Seek developments in January had already begun to shift investor sentiment on U.S. equities. At the same time, Germany’s decision to unwind its "debt brake" prompted many to reconsider eurozone exposures.

In private markets, a persistent influx of capital into private equity has coincided with a slowdown in distributions. Higher rates have made leveraged buyouts less attractive, and many managers are reluctant to realise losses on assets still marked at optimistic valuations.

With less capital being returned — and many institutions already overweight private markets — some have turned to the secondary market, often selling at steep discounts. Private credit stakes, for example, have reportedly been trading at 70 cents on the dollar.

Meanwhile, prominent endowments such as Harvard have faced funding pressures exacerbated by U.S. political decisions, reinforcing the importance of liquidity. Geopolitical tensions have also prompted major Canadian pension funds and Chinese sovereign wealth funds — historically large U.S. allocators — to pause new commitments.

Implications for Investors

In this shifting macro regime, three portfolio adjustments stand out:

1. Diversify safe assets. A mix of currencies and gold may now be more reliable than sole dependence on the dollar.

2. Reassess diversification. Bonds may offer income again, but their role as a hedge is no longer assured. Global macro — including trend following — remains a strong candidate for diversifying equity risk.

3. Prioritise liquidity and balance equity exposures. With uncertainty high, a more globally balanced equity allocation and greater attention to liquidity are both warranted.

How this regime shift ultimately plays out remains to be seen.

Equity markets have again shown resilience, but as we saw during the Global Financial Crisis, relief rallies can be fleeting.

The investing landscape is being reshaped — but amid the uncertainty, time-tested principles remain: diversification, robustness, and maintaining liquidity are more important than ever in guiding long-term asset allocation.